DraftKings’ fourth quarter results had many investors spooked and its share price target was downgraded from around $40 to $19-$25. The group’s long-term story of growth through scale is taking longer than expected, but most industry analysts remain cautiously optimistic that it will get there.
Wagers.com rounds up the key post-Q4 insights and comments.
Edward Engel, Roth Capital Partners
“Several multi-billion dollar operators remain on the sidelines including Fanatics, BetWay, Bet365 and possibly ESPN. While the initial wave of marketing could ease in 2023, we see another wave emerging from new entrants. We believe this will put DraftKings in a position to choose between lower margins or lower market share.”
Shaun C. Kelley, Bank of America
“The magnitude (of the losses) was worse than expected., driven by: 1) deeper marketing investments and 2) another year of fixed cost investments in product/technology. We expected #1, however, #2 is concerning: DraftKings is still building its technology platform while key competitors like FanDuel/BetMGM are able to leverage existing systems. Higher fixed costs could/should result in a later inflection to profitability and perhaps a lower margin structure than peers. Is the business really right sized for profits relative to the opportunity at hand?”
David Katz, Jefferies
“The negative reaction post-earnings was primarily driven by the wider than expected EBITDA loss guided for FY22, which is consistent with the path the company has defined since the market’s inception. While we do not believe liquidity is a concern, we expect the Street’s limited acceptance for near-term losses is a pressure point for the group and DraftKings.”
Daniel Politzer, Wells Fargo
“Path to profitability remains a key debate in USSB, but much of the focus has been on excessive promotions/marketing, which should both moderate over time (for DKNG and the industry). We do believe a dynamic has emerged where promotional periods are being compressed with customers being acquired more quickly, and thus could envision a scenario where DKNG’s 2-3 year state-level profitability path skews closer to ~2 yrs.”
Chad Beynon, Macquarie
“DraftKings has always been a long-term story. From a top-line perspective, we continue to believe the North American Online Gaming industry will see strong growth ahead. In this environment, we continue to believe there will be a handful of winners – those with scale, differentiated UA strategy, brand, and tech, and we firmly believe DraftKings falls in this category. With $2.2bn of cash, we believe DraftKings has the runway to bridge the gap to the two- to three-year timeline for state-level profitability. With shares 76% off 52-week highs, we believe the story and expectations have meaningfully de-risked.”
